* Nikkei on track for biggest 1-mth pct gain in nearly a year
* Foreigners net buyers last week for third week running
* Recent overseas buying likely includes fresh funds-analyst
* Nikkei up 0.1 pct in thin trade, not far from 5-mth peak
By Antoni Slodkowski
TOKYO, Nov 26 (Reuters) - Japan's Nikkei average inched higher on Friday, maintaining gains that have seen it rally 10 percent this month on a pick-up in overseas investor demand for Japanese equities.
Steelmakers such as Nippon Steel Corp and JFE Holdings climbed, buoyed by recent climbs in metals prices.
Trading volume was thin following the U.S. Thanksgiving holiday and ahead of the weekend, with just 0.8 billion shares changing hands on the Tokyo exchange's first section, on track to come in well below the five-day full-day average of 2.1 billion shares.
"Thanksgiving played in favour of Japanese stocks, as position adjustments by funds ahead of their book closing in November coincided with Thanksgiving and the dollar's strengthening against the yen," said Kenichi Hirano, operating officer at Tachibana Securities.
"There are still some overseas funds that close books in December and they still have some more year-end portfolio tweaking to do, so we will see this buying energy continue at least until mid-December."
The benchmark Nikkei rose 0.1 percent or 9 points to 10,088.78, inching a tad closer to a five-month intraday high of 10,157.97 hit on Monday.
The broader Topix index edged up 0.1 percent to 870.52.
Overseas investors were net buyers of Japanese stocks for a third straight week last week, having bought a net 172.0 billion yen ($2.1 billion) in the week to Nov. 20, finance ministry data showed. That brings their total net buying in November to 464.0 billion yen.
The Nikkei has struggled to retest its five-month peak hit earlier this week, with investors worried the market may be overheating. A 10 percent gain this month would be its biggest one-month percentage gain since December 2009.
But the overall sentiment in the market remains bullish, with many market players predicting now Nikkei is likely to end the year around the 10,500 mark.
"Recent purchases done by foreign investors are not simply short covering but I think fresh funds are being poured into Japanese shares. More follow-through buying could drive up shares prices further," Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Morgan Stanley Securities.
"Our next major focus would be consumption in the United States during the holiday season. Any strong signals in U.S. economic indicators, especially in consumption and jobs, would prompt more fund flow into share markets."
Among steelmakers, Nippon Steel Corp gained 3.6 percent to 286 yen while JFE Holdings rose 2.6 percent to 2,760 yen.
Blue-chip exporters also lent support to the Nikkei, as the dollar edged higher against the yen to touch a seven-week high near 83.90 yen.
Honda Motor rose 0.7 percent to 3,105 yen and Sony Corp climbed 0.6 percent to 2,911 yen. The consumer electronics giant said it will re-enter Japan's electronic book market and open an online bookstore offering 20,000 titles, almost all in Japanese. (Additional reporting by James Topham and Chikafumi Hodo; Editing by Edwina Gibbs)